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Direct-to-consumer knitwear brands are making money by focusing on supply chain and sustainability
For knitwear brands, going direct to farmers and sourcing recycled yarns isn't just better for the planet, it's a path to profitability.
When Naadam launched its $75 cashmere sweater in 2018, people wondered how it was going to make money.
The price seemed pretty cheap for a garment made from good-quality cashmere — one of the world’s most luxuriously soft wools. But in terms of crazy business decisions, it was nothing compared to how Naadam got started in the first place, with founder Matt Scanlan taking plastic bags stuffed with millions of dollars in cash to rural Mongolia, where he traded it in for a glut of fluffy goat fur.
“It was the way we did it,” says founder Matt Scanlan, although he says he has some discomfort over how powerful a marketing tool that story has been for the brand. “I’ve always had a bit of difficulty and to this day I’m conflicted about using the things we do with these communities as marketing fodder. But having said that, when you talk about the origins of materials and the sourcing of materials, that impacts how people perceive quality.”
For Naadam, the story of where it gets it wool from has been a useful way to get people to engage with the supply chain issues that relate to cashmere in particular — namely, that farmers in rural communities have been squeezed on price as demand for cashmere has grown — while also emphasizing the quality of the materials it is sourcing.
The $75 sweater was a continuation of this story, designed to show that it is possible to give both customers and farmers a better deal. All you have to do is rethink the supply chain.
Where knitwear brands get their wool
Normally when a fashion brand wants to get ahold of wool to make sweaters, its founders don’t hop on a plane to Mongolia.
Typically, a brand will purchase ready-made yarns from a mill, who will source their fibers from materials brokers and at auctions. The brokers are, in turn, working with yet more middle-men, who liaise directly with farms to get their hands on the raw materials.
It’s a fragmented supply chain where everyone is taking a cut along the way, and which leaves brands (and customers) struggling to identify exactly where the wool in any given garment has come from, let alone how sustainable and ethical those sources are.
A number of direct-to-consumer brands want to bring this issue to consumers’ attention, highlighting alternative ways for sourcing materials. In the U.K., bootstrapped knitwear brand Herd has narrowed its supply chain down to a 150-mile radius, sourcing its wool from farms in the North of England. In Paris, French knitwear brand Tricot has been developing its own yarns made with recycled fibers. To reduce the impact of its garments, Sheep Inc works with farmers practicing regenerative agriculture techniques that protect soil health and improve biodiversity. Swedish apparel brand Asket has made the switch from virgin to recycled cashmere and wool. Naadam, meanwhile, has created its own closed-loop system to refashion its own fabric scraps and leftover yarn into new sweaters.
Recycled yarns, which a number of brands are turning to, can be tricky to work with. While these yarns have a positive impact in terms of keeping already-made fibers in use, the process to get ahold of them — mills will collect worn-out sweaters, and sort them by color, quality and material type before shredding them down — means the fibers are no longer as durable as they once were.
“The recycled fiber is weaker than a good-quality cashmere,” explains Rémi de Laquintane, Tricot’s cofounder. “If you want to be sustainable, you have to produce something that lasts. It doesn’t make sense to say, ‘this is a recycled cashmere sweater’, but then it falls apart after six months.”
While it is possible to create a 100% recycled wool (as Asket uses), cashmere fibers need to be blended in order to produce a yarn that’s strong enough to last. Tricot has been working with a 50/50 blend of recycled and virgin cashmere, although for this season it will use a yarn that’s made from 20% recycled cashmere, 60% recycled wool and 20% virgin wool. Asket, meanwhile, uses 97% recycled cashmere and 3% recycled wool for its cashmere garments.
The recycled wools also have a different feel to them: they tend to be coarser and a bit thicker, meaning certain garments are off the table. While these qualities aren’t such a big deal in a sweater or a coat, a tight-fitting polo neck made of scratchy wool is unlikely to become a fan favorite.
Due to these concerns, Asket says it uses the “recycled” label cautiously. “It wouldn’t do the product justice to let the customers believe that it’s second-grade quality,” says cofounder August Bard Bringéus. “Maybe 20 years ago, if someone said ‘sustainable fashion’ there was almost a stigma — you’d picture oatmeal-colored hemp clothing. That’s how it’s been with recycled fibers, until a few years ago.”
However, Bringéus adds, “there wasn’t a dent [in sales] when we moved from virgin to recycled cashmere.”
By fine-tuning their supply chains, brands are hoping to not only improve their products from a sustainability perspective, but also increase their profit margins.
Asket says that buying recycled cashmere costs the business 45-55% less compared to the virgin equivalent.
Naadam, meanwhile, says the profit margin on its $75 sweater has been improving by between 5 and 10% year-on-year since launch.
“When we launched the $75 sweater in 2018, we didn’t know we could do it in a way that made us money,” Scanlan admits. “We went out with what we initially viewed as a loss leader, from a margin perspective, but it didn’t matter because [we thought it was] going to change consumer opinion, and that we’d sell so much of it that our margins would be where we wanted them to be in the long term.”
Naadam has also found ways to make money beyond simply selling sweaters to consumers. Because it sources cashmere directly from farmers, it can then sell this raw material to yarn spinners, creating an additional revenue stream. This relationship not only provides Naadam a cash-flow boost while it waits for its sweaters to be knitted up and sold to customers, but it can also sell more yarn than it needs for its own sweaters to these factories, for other brands to use.
“We don’t dictate where it goes. We go to a manufacturer and say, ‘OK, we want discounts on our manufacturing and better terms, so we’ll sell [yarn] to you at a discount and you can make money selling it to other brands too',” Scanlan says. “The competitive advantage gets broader as we expand our footprint.”